Amazon; Cow Accounting

Lynn Smith: ‘I read yesterday that Amazon.com had earnings per share of $.01 last quarter. Their first ever in the black. The article also contained a bunch of gibberish about ‘pro forma’ profit. Any comment?’

☞ Yes: Good for them! I’ve been rooting for Amazon from Day One (although I am also rooting for Barnes & Noble, whose web site lately, and anecdotally, seems to me to have been more on the ball). Amazon deserves tremendous credit for innovation and enthusiasm and, especially, for trying to delight its customer. Amazon stock was absurdly overpriced not long ago and I enjoyed making fun of it. It may still be overpriced, but at least it’s got a shot at someday justifying your owning it here. (I don’t.) A year or two ago, it was just complete loony tunes.

Robert Doucette: ‘In case you were wondering how Enron came into so much trouble, here is an explanation reputedly given by a Colorado Aggie Professor to explain it in terms his students could understand:

CapitalismYou have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.

Enron CapitalismYou have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island company secretly owned by your CFO who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on six more. Now do you see why a company with $62 billion in assets is declaring bankruptcy?

Dana D. Dlott: ‘The guys from Enron are not nice. They are simply Familiar. Unlike black inner-city youths who rob convenience stores who seem scary, the Enron guys are the people you went to school with. If a thousand inner-city black youths robbed a thousand convenience stores every day for ten years, they still would not have stolen as much as the Enron executives.’